Q&A: Mercado Eletronico CEO Eduardo Nader

Brazilian e-procurement company Mercado Eletronico (ME) (www.me.com.br), one of Brazil's oldest e-procurement ventures, plans to break even in 2Q01. BNamericas recently spoke with Eduardo Nader, the CEO of ME, about acquisition opportunities and how last year's succession of bad news including the Argentine crisis, energy rationing in Brasil, and terrorist attacks in the US affected the e-procurement market.

BNamericas: What is the difference between a private marketplace and the new energy marketplace you have set up for [electricity company] Eletropaulo?

Nader: We have about 60 private marketplaces, which are used by large corporate clients. In the case of Eletropaulo, we are their e-commerce service provider. Currently we have seven such projects where we have created an independent marketplace for each company. In the case of private marketplaces, we [host them] on our home portal.

In the case of e-commerce service provider projects [full-service, independent marketplaces], we do everything for them: CRM, transaction control, registrations, catalog maintenance, etc. Besides providing these services and creating the necessary infrastructure, we actually connect them with all their suppliers.

BNamericas: When do you expect to hit breakeven? ME forecast in January that breakeven would occur in February or March.

Nader: We will break even next quarter, May at the latest.

BNamericas: What is happening with your partnership with Senegocia? Is there a termination date for the contract?

Nader: No there is not. We are still working with them, and will continue to do so for the next few years at least. We do RFQ-sharing with them, and they also sell our e-distribution software, which connects suppliers with buyers and helps keep track of finances and logistics.

Right now there are companies here in Brazil that want to operate in Chile and Argentina, so we will use Senegocia for this.

BNamericas: How would you characterize the current adoption rate of e-procurement solutions in Brazil, and compared to the rest of Latin America?

Nader: Last year in the first semester we experienced a lot of growth - [it was] exponential. Then during the second half of the year the energy crisis, Argentina crisis and terrorist attacks in the US created insecurity here. Big companies stopped e-commerce initiatives.

But nevertheless, we grew by 500% last year as compared to 2000 with revenues of 6mn reais [US$2.54mn], and transaction volume of 26bn reais. This year we will double our volume and revenues.

Chile is growing well, but because of their gross domestic product, which is lower than ours, I don't know how much they can grow. Mexico has no liquidity, or no e-marketplace that has the liquidity we have.

BNamericas: What was the initial investment in ME?

Nader: 10mn reais.

BNamericas: How would you categorize your core services?

Nader: Sourcing, which is the maintenance of catalogs; registrations; reverse auctions; transaction monitoring, which includes call centers and CRM; outsourced e-procurement where we buy the goods for the companies, which is really hot right now; private marketplaces; e-commerce service provider projects; and technical ERP integration.

BNamericas: And what is your revenue stream breakdown currently?

Nader: 30% from e-commerce service provider projects, 30% from services like sourcing and reverse auctions, then 40% from private marketplaces.

The services category will grow a lot. More and more companies want not just technical help with platforms already purchased but strategic help as well. In the past companies have seen e-procurement as too simple - as just buying the platform then making it work.

BNamericas: Do you have a goal for increasing your commerce service provider projects?

Nader: We want to increase our current total of seven [projects] to 12 by year-end.

BNamericas: What about your acquisition last year of Clicon? How is that going?

Nader: That is a very interesting project because although it is a vertical construction portal, it has a catalog of products that can work for other sectors like the chemical and electric [industries]. We incorporated their catalog, client and supplier base. They have already been absorbed by ME.

BNamericas: Do you foresee any more acquisitions this year?

Nader: We are in negotiations now with some possibilities, but I cannot tell you who. Acquisitions are good because they give you more liquidity in less time.

About the company

ME was founded in 1994 and today it has a supplier community of 25,000 small, medium and large companies, with 300 medium and large companies as buyers, mainly in the telecoms, chemical and construction sectors. ME hosts 14,000 RFQs a day. According to the company, buyers save on average 11.4% on the end-cost of products over ME.

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Definitions

Projects covered include state-owned and private projects in the Infrastructure, Electric Power, Oil & Gas (excluding upstream), Water and Waste, and Mining sectors.

Where applicable, a project is considered as such until the end of construction and ramp-up to full capacity (with the exception of mining projects, where the date of commissioning signifies the end of the project). Projects must have a:

Data

For state-owned projects, initial information about the start date and estimates for completion and investment are taken from original signed contracts, along with addendums and annexes.

If original contracts cannot be obtained, information is taken from public documents, presentations, news articles from BNamericas archives, and external sources.

In cases where contracts are subject to approval by legislators, the start date is the date of the law or legislative approval.

In the case of private projects, information is taken from public sources, such as stock exchange filings, annual reports, company presentations, third party research and press releases.

In judging the timing of investment decisions for private projects, great care was taken to differentiate between large projects receiving environmental approval and proceeding directly to construction, and smaller projects where the investment decision hinges on securing financing.

Best care is taken to ensure that recorded data is correct at the time of entry and that each entry is backed with a relevant source.

The greatest care possible was taken to ensure consistency of information in order make a like-for-like comparison in project costs. Insofar as the figures rely on disclosure by the organization or company responsible, the figures can be considered to be conservative in nature.

No attempt was made to adjust figures for inflation during the course of research or for consideration of the time value of money.

Validation

In the case of state-owned projects, validation is carried out where possible with either a member of the consortium, EPC contractor, a relevant state agency or advisors to either party.

Currency

Projects costs are measured in US dollars. Where project costs are measured in a local currency, amounts are converted to US dollars at the date of the relevant announcement, signature or report.

Severity of deviation from original estimates

The severity of deviation from original estimates is defined according to set criteria.

Timing

Status

Condition

Ahead of time

95% of original estimate or below (measured in months)

On time

95% to 105% of original estimate

Minor changes

105% to 120% of original estimate

Medium changes

120% to 160% of original estimate

Major changes

Over 160% of original estimate

Budget

Status

Condition

Ahead of budget

95% of original budget estimate or below

To budget

95% to 105% of original budget estimate

Minor changes

105% to 120% of original budget estimate

Medium changes

120% to 140% of original budget estimate

Major changes

Over 140% of original budget estimate

Changes in Scope

Changes in scope beyond the start date are not accounted for.

Language definitions

Where guidance is non-specific as to dates for completion, the following is used. Project to be completed by 2018 = December 31, 2017 Project to be completed in 2018 = December 31, 2018